The war in Ukraine is already having catastrophic effects on the global economy

By making his decision to invade Ukraine, Putin not only caused thousands of deaths and upset the very existence of millions more, he called into question the fragile global food balance, upset energy circles, and undermined already inadequate efforts to reduce greenhouse gas emissions. It sparked a new arms race. A devastating act whose effects will be permanently negative on the entire world!

It is said that history does not repeat itself, but that tragic events tend tragically to repeat themselves, perhaps in new forms, but with hopelessly similar effects. At the time of the Cold War, the balance of nuclear terror encouraged the rival major powers, the United States and the Soviet Union, not to confront each other directly, but the rivalry between them led to local conflicts where both were more or less armed and supported. Openly hostile powers in Asia, Africa and Latin America.

With the fall of the Soviet regime, Putin’s seizure of power in Russia and the rise of China, we are no longer in a bipolar world, the game has become a bit more complex, but always with care to avoid a major conflagration, conflicts remain geographically limited. In the event of an invasion of Ukraine, a world war would certainly be avoided, but the consequences of the conflict would be very serious outside the war zone.

Global growth slowed

The International Monetary Fund has not yet corrected its global growth forecast, which it estimated in January at 4.4% in 2022 and 3.8% in 2023, a gradual slowdown from the 5.9% recorded in 2021, but it is expected to announce the numbers. In mid-April at the spring meeting it will certainly be much lower.

Russia and Ukraine account for only 2% of global GDP but play a major role in the trade of a few essential products.

The decrease in activity that will be recorded around the world cannot be entirely attributed to the invasion of Ukraine by the Russian army; Already, in January, the International Monetary Fund was forecasting a very sharp decline in growth in the United States, which was due to fall from 5.6% in 2021 to 4% this year and 2.6% next year, which is throwing its weight in the statistics Globalism.

The American economy was about to overheat and needed to slow down; The first increase in the US central bank’s key rate, which was announced on March 16, did not come as a surprise. The containment measures planned in China will lead to additional disruptions in international trade. But the war in Ukraine will hit difficult countries whose activity this year was supposed to increase or decrease moderately.

At first glance, the impact of this event on the world as a whole may seem surprising: as economists at the Organization for Economic Cooperation and Development point out, Russia and Ukraine together account for only 2% of global GDP and a percentage of the trade system itself. The problem is that these two countries play a major role in trading a few essential products: about 30% of world wheat exports, 20% for corn, mineral fertilizers and gas, and 11% for oil.

And if we add their role in supplying the rest of the world with palladium, nickel and other metals used in a number of industries, including the automotive and aviation industries, we see that the potential to cause damage to Russia far outweighs its economic weight.

rampant inflation

For the world as a whole, according to estimates by the Organization for Economic Co-operation and Development in mid-March, the decline in GDP could be a little more than 1 percentage point in the first year and the rise in consumer prices could approach 2, 5 points. The Eurozone, given its proximity and dependence on the two countries, is expected to see a negative impact on annual GDP of up to 1.4 points. The Rexecode institute cut its growth forecast for France from 3.7% to 2.9% this year and from 0.7% to 0.4% next year.

Differences by country should be noted: the most exposed are the countries bordering Russia and Ukraine; In Western Europe, Germany and Italy, which are heavily dependent on Russian gas, are affected more than France, Spain or Portugal. In addition to the risks of supply shortages, there is higher inflationary pressure for these countries.

Inflationary slip can be explained almost exclusively by higher energy prices: 44.7% in one year according to Eurostat estimates.

INSEE estimates that the price increase in France was 4.5% in one year in March. Eurostat has slightly higher estimates, at 5.1%, which nonetheless remains well below those for the eurozone as a whole (7.5%) and well below levels reached in some countries: 15.6% in Lithuania, 14.8% in Estonia, 11.9% In the Netherlands, etc. Only Malta has an annual increase in prices just below ours, at 4.6%.

It can be seen that this inflationary slide can be explained almost exclusively by the rise in energy prices: 44.7% in one year according to Eurostat estimates!

Disjointed subcontracting networks

If the increase in prices for gas and petroleum products is by far the most characteristic phenomenon here, the conflict has other, less obvious consequences.

Take an example given by the Franco-Israel Chamber of Commerce: Israeli high-tech companies suddenly lost some of the computer engineers they needed. They used to cater mainly to Indian contractors, but Ukraine has clearly taken the lead over the past few years: It’s closer, in the same time zone, and facing an average salary of $220 a month in this country, Computer World Very happy to work for $2500 a month for Israeli companies. They are also very happy that they will have to pay at least four times as much for a local engineer.

With the war, this network of subcontractors was dismantled and Israeli companies hastily shifted to India and the Philippines. But the network does not remake itself overnight. It is likely that many of them will see their development as hampered and it is not excluded that some will go bankrupt.

Before the war, 220,000 Ukrainian programmers (of which only 20,000 were made by Israeli companies) brought more than $3 billion annually to their country; Many European companies are also upset.

War in Ukraine and hunger in Africa

But no matter how difficult the situation may be for countries that have to deal with the interruption of some of their supplies of goods or services, however complex the social problems in the face of the influx of refugees and the consequences of price hikes on the poorest countries. Europe and other developed countries, worse elsewhere.

The rising cost of food and energy could lead to serious social unrest in some parts of the world.

‘War in Ukraine means hunger in Africa’And the Subscribe to our newsletter

One can go on to list all the evils, big or small, from which the whole world will suffer as a result of the actions of a dictator. It is not even certain that this will serve as a lesson. Will Africans in the Sahel who are in danger of running out of food know they owe Putin? Nothing less confident. There is at least one point on which the Russian regime has been able to build on from the legacy of the Soviet era: the effectiveness of its propaganda.

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